Gross NPLs increased US$270m.
Although 1Q17 earnings topped expectations, the uncertainty surrounding the rise in NPLs looks worrisome, says Maybank Kim Eng.
Here's more from Maybank Kim Eng:
The key focal point of the 1Q17 results is the THB9.3b (US$270m) increase in gross NPLs, pushing the NPL ratio to 5.25% from 4.79% in 4Q16. At this level, it is higher than that in 3Q16.
Earlier, we had thought that 3Q16 was the peak period of NPLs during this cycle. However, the bank said that the increase in NPLs came from the large corporate sector and some SMEs.
At this point, we do not know how many corporates are involved. If the increase was concentrated in a few companies, NPLs may not escalate much further. Thus, it is hard to assess the NPL situation for the bank. We will meet with management next week to discuss this point further.
Would-be catalyst: sale of non-performing asset
Despite the increase in NPLs, KTB cut provisions sharply in 1Q17 by 21% QoQ. We believe this is because management anticipates extra earnings in the periods ahead. One source of this could be the 1.7 acres of collateralised land that KTB received from AQ for a THB10b loan that it defaulted on and was written off KTB’s balance sheet.
AQ is raising capital to repay the loan and KTB said that even if the plan to raise capital fails, KTB can find potential partners for this plot of land, which is in a very lucrative location. We estimate that if KTB allots all the extra gains from the deal, it could boost its coverage ratio by 20bps to about 130% (from 112% in 1Q17). At that point, KTB’s balance sheet would not look as bad as the market fears today.
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